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TMI Blog2020 (9) TMI 1177X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of the inanimate juristic entity may be found to be in wilful default along with the juristic entity, that is, the borrower, no independent financial obligation would fasten to the human agencies since they may not have extended any guarantee or created any mortgage of their personal properties. In the present case, since no personal guarantee was furnished by any of the writ petitioners, the moment the money due to Axis Bank was paid in full or was agreed to be received by way of a compromise, the writ petitioners stood rid of their burden as wilful defaulters and their names were liable to be removed from the relevant list. If, however, the writ petitioners continued in their capacity as guarantors in respect of the relevant transactions, the writ petitioners would have continued to be liable till the entire debt was discharged. But as the writ petitioners did not have any personal liability, the moment the resolution was approved and Axis Bank received the payment or is deemed to have received the payment, the names of the petitioners ought to have been taken off the list of wilful defaulters. As a consequence, the moment the writ petitioners were entitled to have their n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court. By such time, however, the said company was sold to new promoters in insolvency proceedings before the National Company Law Tribunal. In such situation, the order of the Supreme Court of May 8, 2019, passed at the admission stage of the petition for special leave to appeal, records as follows:- The petitioners state that the assets of the company have since been sold in liquidation of the companies debts. The petitioners wish to make a representation to the Review Committee of the Axis Bank as to whether, in the light of these subsequent events, they should be continued to be classified as wilful defaulter. Such representation will be made within two weeks from today. The Review Committee under the Master Circular dated 01.07.2015 of the Reserve Bank of India, will then decide the said representation and give its reasons in accordance with our judgment delivered today, on 8 May, 2019, in Civil Appeal No. 4776 of 2019. The principal parties here agree that the liquidation referred to in the Supreme Court order, in fact, pertains to the insolvency proceedings before the NCLT. The parties also agree that the Review Committee was of Axis Bank and not of Reserve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... previous circular of July 1, 2014. However, for the present purpose, the most important clause appears to be sub-clause (a) of clause 2.5 of the 2015 Master Circular:- 2.5 Penal Measures The following measures should be initiated by the banks and FIs against the wilful defaulters identified as per the definition indicated at paragraph 2.1.3 above: a. No additional facilities should be granted by any bank/FI to the listed wilful defaulters. In addition, such companies (including their entrepreneurs/promoters) where banks/FIs have identified siphoning/diversion of funds, misrepresentation, falsification of accounts and fraudulent transactions should be debarred from institutional finance from the scheduled commercial banks, Financial Institutions, NBFCs, for floating new ventures for a period of 5 years from the date of removal of their name from the list of wilful defaulters as published/disseminated by RBI/CICs. b. ... On a meaningful reading of the relevant Master Circular, it is evident that any juristic entity can be labelled as a wilful defaulter though the mens rea element of the wilfulness of the default has, per force, to fasten onto some human agenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elevant expression in the Master Circular, the human agencies in control of such company and who may have caused the wilful default may also be branded as wilful defaulters along with the borrower company. As long as the human wilful defaulters continue to be associated with the borrower. company and the repayment has not taken place, such human agencies continue as wilful defaulters along with the borrower. It is possible that the promoter wilful defaulters (the human agencies found guilty of diversion of funds or siphoning off thereof or the like) may voluntarily sell off their stake in the borrower company. In such a situation, such human agencies continue as wilful defaulters till the debt due to the lender is discharged; whereupon, they qualify to have their names removed from the list of wilful defaulters. This would govern a situation where the human agencies identified as wilful defaulters have no personal obligation to repay the lender other than to cause the borrower to make such repayment. The situation is entirely different if the promoters are required under any law or by any authority on the basis of any law in force to divest their shares in the borrower company. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the Master Circular. 15. The Master Circular is somewhat unhappily worded as to how the name of a wilful defaulter ought to be removed upon such name being appropriately once included in the list. In other words, once a person is appropriately condemned, the Master Circular does not adequately indicate how the person may make good the loss that he may have brought about and not carry the stigma for any longer than necessary. 16. The relevant sub-clause under the heading penal measures can be seen to be in two parts. The first part is covered by the first sentence. The prohibition envisaged in the first sentence is co-terminus with the name of the wilful defaulter being removed from the list. However, the second part of the penalty in the rest of the sub-clause, in essence, prohibits a wilful defaulter from setting up any new commercial enterprise with the aid of finance made available by FIs or NBFCs or scheduled banks. The second limb of the penalty continues for a period of five years after the name is removed from the list of wilful defaulters; and, thereafter no other prohibition applies. 17. There is also the stigma which attaches to a person or an entity havi ..... 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